A period of lower-cost oil has, famously, descended on the market, reminding us that business models should always take into account “black swan” economic events such as the battle between OPEC and unconventional oil producers over some 10% of global market share, which has tumbled oil prices some 20% down, with US currency strength causing another 20% or so tumble.

Bottom line, many project developers that expected to compete with $100 oil are facing $65 Brent and sub-$60 West Texas Intermediate.

What’s the bottom line?

Survive

First-Gen ethanol producers. So-so. Corn prices have fallen, and though margins have been compressed and gone negative in some cases, balance sheets remain strong and the margin outlook is improving and positive news from the US on Renewable Fuel Standard may provide a big boost. Pacific Ethanol had an earnings report out this week that caused a 10% jump in the stock.

Biodiesel producers. So-so. Margins are negative now, but many companies received a balance sheet booster via long-delayed tax credits that recently went through. Most companies are in a “we’d like stronger RFS volume obligations” mode, rather than taking a “let’s produce as little as possible and hang on” line.

Industrial sugars. Pretty good, all in all — low-cost inputs are more popular than ever. As Lux observed, “Total has added to its existing portfolio in biofuels and bio-based chemical companies by investing in Renmatix, a biomass-to-sugars company.” We’ve seen companies like Leaf Resources and American Process strongly tout their cellulosic sugars production capabilities.

Butanol. Another one that is looking surprisingly strong. While BP was shedding assets left-and-right, including its entire cellulosic ethanol busienss, it held on to its share in Butamax. And Gevo has been reporting key progress with Praj and Alaska Airlines. Perhaps most impressively, Green Biologics racked up a $76M capital round and is now converting “plant #1” to commercial-scale n-butanol production.

Oil major support. Lux sees it very strong. Shell, Total, Reliance – for sure. BP has wavered, driven more by its Gulf oil spill woes than a change in worldview. Chevron remains quietly engaged but mostly on the sidelines. Petrobras has retreated. The China oil companies have made engagements but nothing at commercial scale, yet. Lux comments: “Oil majors remain a pillar of support. Believing cheap oil to be a short-term phenomenon, oil majors have remained prominent supporters of alternative fuel developers across various technology platforms.

Aviation Biofuels. We see it moving strongly. US Navy support is propelling Fulcrum, Red Rock and Emerald. Cathay’s support of Fulcrum is a huge boost, as is Alaska for Gevo, Avianca for Byogy, United for AltAir, Virgin for LanzaTech, GOL for Amyris, and British Airways for Solena. Lux cautions that “Solena Biofuels [was] among the laggards on account of delayed production and commercialization.”

Gasification. We’ve seen a number of players switch to methane. Primus Green Energy and Coskata said they would, but haven’t brought a project forward. But a consortium including Waste Management and Velocys is going forward on a signature project to produce synthetic fuels from natters.

Take Five

Cellulosic developers. Lux observes that a number of companies have delayed planned commercialization efforts. And we’ve seen one-time high-flyers like Cobalt and Mascoma go into stealth mode. Plus, several cellulosic biofuels producers with high-profile openings in recent months and years have taken this period of time to optimize production rather than produce a whole bunch of gallons. So, we’ve not seen much produced by INEOS Bio, Abengoa, POET-DSM, GranBio or Beta Renewables while they go through extended shakedowns. And it’s been tough sledding for cellulosic producers to find backers, despite attractive returns from good proposed projects,

The Lux Report

“$50 oil was never an afterthought for technology developers,” said Yuan-Sheng Yu, Lux Research Associate and the lead author of the report titled, “How Alternative Fuel Companies Will Compete with $50 Oil.”

“Many companies have technology roadmaps for cheaper alternative fuels. Not all of them will actually achieve that benchmark, but some will – while others will find alternate markets or, ironically, use support from oil majors to survive until prices rise again,” he added.

The report, titled “How Alternative Fuel Companies Will Compete with $50 Oil,” is part of the Lux Research Alternative Fuels Intelligence service, and you can learn more here.